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Property firms target investments offering recurring income

Feb 03. 2019
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By Somluck Srimalee
The Nation

Developers innovate to find new income sources as demand for residences declines

With the property market in the grip of intense competition as consumer demand for residential projects decline, most property firms are investing in projects that generate recurring income in order to sustain long-term growth.

Investments that generate recurring income run the gamut in both the domestic and overseas markets, including hotels, office buildings, apartments and warehouses. 

Most local firms are also expanding their investments in proptech startups, developing applications and other innovative setups related to the property sector. 

“We are expanding our investment in businesses that generate recurring income with a yearly budgฌet of Bt2 to Bt3 billion. We have stepped up our acquisitions of properties in the US, mainly apartments. After renovation, the properties were put up for rentals or sale,” said Naporn Sunthornchitcharoen, Land and Houses Plc’s chairman of the board of directors, adding that it had generated a double-digit return on investment for the company annually.

“We have also invested in other businesses that generate high return on investment. It balances our total revenue and net profit to ensure strong yearly growth.” 

Land and Houses Plc was the first property firm to create a business model based on developing residential projects for sale while also investing in other businesses that generate sustainable income for the company. Up to 30 per cent of its net profit were contributions from subsidiaries and recurring income, helping to maintain the company’s net profit margin of above 20 per cent annually – higher than the average of 14 per cent among other developers in the market. 

Given the success of Land and Houses’s business model, other property firms are following suit, investing in businesses that generate recurring income. For example, Origin Property Plc, which entered the property sector 10 years ago, invests in residential projects for sale and develops hotels. 

Chief executive officer Peerapong Jaroonek said the company will invest up to Bt10 billion to develop five hotels between 2017 and 2020, expecting recurring income accounting for 20 per cent of the company’s total revenue by the end of that period. Two of the five planned projects will be opened and operating by the end of this year.

Meanwhile, the company is also investing in proptech and startups through its subsidiary, Primo Service Solution Co Ltd, which is seeking new business services that could meet the needs of all property firms, says Peerapong.

“This will generate recurring income to our business. This is a part of balancing our portfolio,” Peerapong said. He added that “our business model was inspired by Land and Houses Plc, which has long experience in this industry and also shows strong financial results every year”.

For its part, SC Asset Corporation Plc set aside a Bt1billion investment budget to acquire apartment buildings in the US last year, said Nuttaphong Kunakornwong, the company’s chief executive officer.

The company’s recurring income from its office buildings in Bangkok now accounts for up to nine per cent of total revenue, and is expected to reach 15 per cent in 2020 with the boost from its investment in the US, he said. 

Meanwhile, the company will invest Bt1 billion in startups for the development of applications and services related to the property secฌtor as part of its strategy to generate recurring income, he said.

“We need recurring income to balance our business amid the slowdown in market demand for resiฌdential units, which is cyclical within the industry. Recurring income will balance our portfolio in terms of revenue and net profit for the long term,” Nuttaphong said.

Pruksa Holdings Plc has identified the hospital sector as the means to revenue diversification, having invested Bt1 billion in 2017 to develop a hospital that will open in 2020. 

The company sees the need to create recurring income, says chief executive officer Thongma Vijitpongpun.

LPN Development Plc’s chief executive officer and managing director, Opas Sripayak, said the company had begun work on an office building last year that will open in 2019.

The company has also created a new business model for its completed condominium projects with unsold units.

Recognising the market niche of people who want to live in a condo but are unable to purchase the unit, LPN is offering contracts that allow tenants the option of buying the property in the future. 

When the tenant has accumulated sufficient buying power, the contract will be changed for the tenant to acquire the unit, he said.

“We have to find ways to generate income from our assets,” Opas said.


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